But again, as the year evolves and you can see this even with our guidance, we will move in the right direction. Again, from a long-term, our model has not changed, but we’ll just have to work through it over the next couple of quarters.
Mayank Tandon: Got it.
Leonard Livschitz: Mayank, do you want more details or you’re okay with the answer? So if you do want more details, the thing is Central Europe is more expensive than Eastern Europe. Everybody knows it. It’s well known secret. So as we grow our position in Poland and other countries around the region, obviously, there was a penalty associated with the incremental cost. We added the variance in the Mexico. We had inflated Peso situation. But the key resolution for our business, obviously, with the growth of India, that’s where we believe our marginality is evidently improving. But there is another thing, it’s we’re actually striving right now for a significant improvement of the marginality in Europe as well. Now we have a broader country with more stable workforce.
Sadly, now, the war in Ukraine continues to ravage, but we are reducing our dependency and we’ll continue to invest into the more, what I call stable territories. So I would say that seasonality, which Anil told you about reflects our current status quo. I believe, in Q2, we will see some pick up. But also, to me, this 2040 model, even though it seems quite remote right now, the revenue will need to demonstrate our catch-up on the margin, not adversely planted. We are not intending to buy the business, because technology is so critical, then the value of what we do has to propagate to the results, right? So as revenue grows, I see the margin improvements. The other part of this, not only in the margin or EBITDA side, we have not lowered our technology investment, which, again, it’s a trade-off.
You need to persevere the flatness, which was quite long. So we’re bullish, but the numbers will tell you the true story.
Mayank Tandon: Perfect. Very helpful. Thank you so much. Great job on the quarter.
Anil Doradla: Thank you, Mayank.
Cary Savas: Thank you, Mayank. The next question comes from Bryan Bergin of Cowen. Bryan, the line is open. Please go ahead.
Zachary Ajzenman: Hey, thanks. Good afternoon. Zack Ajzenman on for Bryan. First question on demand. Are you comfortable that historic large clients that have caused pressure in the recent past are at least stable here, offering that foundation for growth reacceleration as new enterprise logos, one over the next last 12 months continue to scale?
Leonard Livschitz: All right. Let me take the first part. I think Anil will go through. There is no evidence today of any large customer declining with Grid Dynamics. We’re in April, we kind of understand the trend of this year. Knock on the wood and things do happen. But it’s stable to positive. So we’ll continue to generate the new enterprise clients. Well, if you noticed, we did reduce a bit of those smaller clients in the commercial side because there is a dichotomy that goes on, survival of the fittest. So some of the small guys are actually struggling with their innovation and funding. But nevertheless, we expand the market, too. So if you look at our growth, it goes not just traditionally with the CPG and retail, but it’s also expanding quite a bit into the fintech part of the BSFI player are gaining momentum in the life science supply chain.
We got our first good step into the insurance business, and it happens on a stable to positive foundation of our major lead clients.
Anil Doradla: So Zack, building upon that, I’ll just reiterate it slightly different. Your observation is astute and right on. If you look at our second quarter guidance, we’re reverting to year-over-year growth right after that trend has reversed after a couple of quarters. And the underlying trends point that out very well, both in terms of existing and new ones. New clients were always good for us, right? The existing clients moved the needle for us, and that is changing now.
Zachary Ajzenman: Yes, very helpful. And then the follow-up on GenAI. Obviously, interest here continues to swell. We’ve also heard anecdotes that it has impacted the pace of client decision-making as customers try to figure out what to do with the technology. If you’re seeing this, what do you think needs to happen for this trend to loosen up?
Leonard Livschitz: Very loaded question. I can get you entertained with having this distinguished CFO answering. Fun for me to watch. So I mentioned in the first remarks when we talked with Puneet that Grid Dynamics goes very broad. And the benefits, sometimes are not trivial from the purely direct savings. So we have one of the very large legal customer. And when they’re doing a lot of simplification of the work. Time will tell how good the savings will be. We implemented a big portion of the work with the financial wealth management plan, but they’re a enterprise type of solution. When it comes to purely Generative AI, it’s almost anecdotal right now, which projects will combine some of the work from the communicational part, right?
So there are many things Grid Dynamics has done in the past. We did natural language process vector search. We’re doing all kind of features now enabled by AI. So I would say that to be very precise, the scale of the result with the model has been more solidified with the bespoke custom solutions are becoming more evident. But if you use a generic model without proper understanding of the ways, then people may not see all the results right away.
Zachary Ajzenman: It’s very helpful. Thanks.
Leonard Livschitz: Of course.
Cary Savas: Thank you, Zach. Our next question comes from Josh Siegler at Cantor Fitzgerald. Josh, the line is open. Please proceed.
Josh Siegler: Yes, hi guys. Thanks for taking my question today. I appreciate it. First and foremost, congratulations on the strong results here. I was wondering if you could dive a little bit deeper into new geographies that you’re particularly excited about as you progress through the year from a demand perspective?
Leonard Livschitz: Well, as a demand, U.S. market remains to be the most critical for us. So there’s no question about it. If you look even at centers or gravitas, we are actually scaling our technical competence centers beyond Bay area. We’re zeroed in on Dallas for a while. We’re getting our office and capabilities in Atlanta area. We are very strongly present in Jersey, Boston expansion. And of course, in the Midwest as well as not only the California, but also Arizona following the trend of the expansion of some of our clients as well as the trend of the stacks on the software side driven by the major hardware companies. So it’s a revolutionized technology in U.S. where we are stronger. So that’s very clear. Saying that Europe is starting to pay some dividends.
It’s a bit below my ambitions yet in terms of the growth in Europe, but we see that the traction in Europe and the first wins come outside of our traditional retail sense. And I’m not talking about small deals. I’m talking about consistent growth. And we see that pick up in manufacturing. We see that pick up in growing and approaching automotive industrial part. And outside of these two regions, we have, I would say, the first, I would say discussions; it’s not tangible yet. But the big part of our growth engagement happened with our clients, both United States and European captive centers in India. So India has become our revenue growth through the influence of the local innovative technology centers, which are part of the global companies.
We just announced hiring of our Head of India as well. So I would say there’s a brushstrokes; that’s how I see the demand environment regionally.
Josh Siegler: Great. That’s really helpful, Leonard. Appreciate that. And then I was also curious, I probably ask this far too often, but would love to get a better understanding for how you’re thinking about M&A currently? If there’s been any shift in terms of your perspective on inorganic growth since last we talked.
Leonard Livschitz: Okay. Anil?
Anil Doradla: Well, you see M&A at the end of the day is when we announced, we announced that the proof is in the pudding when we have. If you look at the pipeline, if you look at the activity, it continues to be a robust. If I look back at the last call seven, eight months, and we did a little bit of analysis what is going on in our M&A. We would have liked to announce a couple of deals before. We see certain trends, whether it is through some of non-strategics who are willing to maybe be a little bit more aggressive. We see — in many cases, we’re very — our standards are very high which means that unless we really feel that there’s a strategic fit, capability fit, we’re just not going to do it. And more importantly, in the last 12 months, as Leonard pointed out, we did not buy revenues.
